851G.00/12–2249
The Ambassador in France (Bruce) to the Secretary of State
[Received January 2, 1950.]
No. 1146
With reference to the Embassy’s Gable No. 5197 of December 11, 1949, and to Toeca Cable No. 1435 of December 2, 1949,1 I have the honor to transmit herewith a memorandum prepared in the Embassy’s Combined Financial Group2 dealing with the burden imposed on the French public finances by military expenditures in Indochina; a summary of the major lines of the attached document was contained in Toeca 1435.
The enclosed memorandum highlights the fact that Indochinese expenditures impose such a burden on the French public finances as to constitute an important obstacle to the success of the whole French recovery and stabilization effort. The 167 billion francs spent in Indochina in 1949 is not only equivalent to over two-thirds of the total direct American aid to France for 1949–50, but some ten billion francs greater than the estimated French budgetary deficit for the year; the sixty-billion franc excess over budgetary estimates of actual Indo-Chinese expenditures in 1949 more than accounts for the operating deficit of the French Treasury as of the end of 1949; and the year 1950 will probably see the Treasury saddled with at least forty billion francs more in unforeseen expenditures. It is clear that the struggle to create conditions necessary for the continued growth of a non-Communist Viet Government in Indochina, to which the French are apparently irrevocably committed, constitutes for the moment a major obstacle in the path of French financial stabilization and economic progress, with all that that implies for the European Recovery Program as a whole.
Unlike so many of the seemingly insoluble problems of the French Treasury, the Indochinese problem is one the United States can do something about. For in addition to taking the general political measures recommended in the Embassy’s telegram 5197, measures designed by strengthening Bao-Dai to shorten the period of necessary military [Page 113] activity, the United States is in a position to take direct action to relieve the French of at least a part of the financial burden of their Indochinese commitment by making use of the special fund established by the Mutual Defence Act of 1949. This double opportunity to resist Communist expansion in Asia at one of its most dangerous points while contributing directly to the maintenance of French economic stability, is one which in my opinion the Department should seriously consider.
Respectfully yours,